The Collapse of Silicon Valley Bank: Implications for Startups and the Tech Community

The collapse of Silicon Valley Bank (SVB), one of the most prominent and important banks in the tech community, has had far-reaching effects on the financial ecosystem. Since its inception, SVB has played a crucial role in the funding and supporting the development of startups by serving as one of the few lenders willing to support the dynamic capital needs of high-growth companies.

Federal regulators shut down SVB on Friday following a run on deposits.  Per FDIC regulations, depositors with SVB have $250,000 of their cash insured; the rest is uninsured. Given many founders and startups had millions with SVB, that puts huge sums at risk.  This unprecedented turn of events has left a large funding gap for the high-growth technology firms that have received significant venture funding in the last decade, and could ultimately make it harder for startups to obtain funding to scale their operations. 

Even startups that did not bank directly with SVB have felt the ramifications of its collapse.  For example, startups that used other venture-backed platforms who did have SVB accounts for payroll are suddenly faced with the pressures of paying employees.  The ripple of effects of the bank’s demise are likely to be extensive, and could result in a slowdown in the growth once hot tech market.  According to SVB’s website, the bank supported almost half of US venture-backed startups at the end of December.  In a tweet, startup accelerator Y Combinator’s CEO Garry Tan said SVB’s collapse was “an extinction level event for startups and will set startups and innovation back by 10 years or more.”

Venture First continues to monitor the situation and potential contagion risk to other regional banks. For example, we were planning to use First Republic Bank for our second whiskey capital fund, but we are now proactively shifting to another bank to reduce our exposure to any potential stability issues. Please note that we are not signaling distrust in First Republic Bank, which had a Common Equity Tier 1 Capital Ratio (adjusted for unrealized losses on securities) of ~6% in Q4 2022, in-line with the likes of Bank of America, Zion’s Bancorporation, Huntington’s Bancorporation, PNC, and KeyCorp. We are simply being proactive as we do not yet fully understand the contagion risk caused by this event.


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